While there have been significant positive changes in other areas of regulation affecting securitisation, representatives of key sectors of the economy – including the car industry, small- and medium-sized enterprises (“SMEs”) and mortgage lenders – remain concerned that new regulations will reduce their access to capital and raise the cost of financing. The Draft RTS risks having precisely such a negative effect as a result of its significant implications for Securitisation Swaps, AFME believes. The Draft RTS should be modified to permit initial margin models for uncleared derivatives to account for risk reductions and risk offsets provided by other products subject to legally enforceable netting arrangements and supervisory approval of the models correlation assumptions.
It would be more beneficial to all parties to offer optional segregation of initial margin rather than to require mandated segregation, such that if counterparties opted for segregation, the prime broker would provide the relevant operation processes and procedures to enable this to take place. The proposed ban on rehypothecation of initial margin should not be introduced.
Securitisation Swaps should be treated in a similar way to swaps connected with covered bond transactions for the purposes of the Draft RTS. Accordingly, the Issuer should not be required to post initial or variation margin to the Swap Counterparty.
Full AFME response
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